Discharging Student Loans in Bankruptcy

Increasingly, one of the most common questions we’re asked is whether you can discharge student loans in bankruptcy. Until 1998 student loan debtors were able to discharge some loans if they were old enough. But in 1998 Congress changed the law to make it harder to for student loan debtors to get relief. Restrictions on the discharge of student loans were first applied just to federal loans but in 2005 they were extended to private loans as well. This has created tremendous hardship for borrowers with ever increasing student loan debt.

Despite the increased restriction on discharging student loans in bankruptcy, it is still possible under some circumstances and some recent court decisions in Iowa and the 8th Circuit, where Iowa is located, has provided some hope for borrowers. To get a discharge, student loan borrowers must prove that they have an “undue hardship”. In Iowa the test for determining what makes an undue hardship is (1) the debtor’s past, current, and reasonably reliable future financial resources; (2) the debtor’s and the debtor’s dependent’s reasonably necessary living expenses; and (3) any other relevant facts and circumstances. The 8th Circuit Court of Appeals recently used this test to discharge the student loans of a family with children with significant medical issues and a bankruptcy judge in Iowa also recently used the test to discharge the student loans of a family with income so low that they would never be able to repay all the loans.

This recent case history illustrates that although it’s difficult to prove an undue hardship sufficient to get a discharge of student loans in bankruptcy, it’s not impossible. If you think you have the right circumstances to warrant a student loan bankruptcy discharge, please contact us so we can review your case.

Contact us today. We can help.

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Nancy L. Thompson, Attorney

Nancy has over thirty years of experience helping consumers, small businesses with their debt problems. She received her Bachelor's Degree in Political Science from Iowa State University and her J.D., with honors, from the University of Iowa College of Law. Nancy is currently the Iowa State Chair for the National Association of Consumer Bankruptcy Attorneys. She is a member of the Iowa State Bar Association,the National Association of Consumer Bankruptcy Attorneys and the National Association of Consumer Advocates.